Grain Pricing Options - Parrish and Heimbecker, Limited

Grain Pricing Options give peace of mind

There’s a simple tool that will lift a big weight off your back. Grain Pricing Options give you peace of mind and work even while you sleep.

A Grain Pricing Option (GPO) is a target price that is set for a specified number of tonnes and delivery period. It’s really easy. You work with your customer service representative at P&H to set the target price and then walk away. We will call you if the market reaches or surpasses the price you set. As soon as your target price is met, the GPO becomes a legally binding contract.

Big trends in the market are generally seen over the course of weeks or months. But capturing the brief spike in the market is difficult. It can be deflating realizing you missed a nice jump in the overnight markets only to see the price settle back down by the time you glance at the news.

Protects you even while you sleep

A GPO protects you from missing your target price while you’re sleeping or even seeding, spraying or on vacation. It’s an easy way to get some peace of mind.

You can change the target price for your GPO if the market turns bullish and you think your original target price was too conservative. The only caveat is that you have to change the target price or cancel the order during business hours.

Price a portion of your expected production

As you build your marketing plan, sell only the portion of your crop that is covered by crop insurance in order to protect yourself from production issues.

Some analysts recommend that growers aim to sell at a price that is above the average price of the year. Talk with your CSR. They can help you think through your target price based on historical data and market projections.

Disciplined marketing starts with knowing your cost of production

To confidently set a GPO you need to know your cost of production. Divide your total cost attributed to that crop by the total expected yield. Once you know your break-even price you can look at the markets and plant a flag in the ground based on where you see prices going. Of course, cash cost, fixed costs and cash flow all need to be taken into account as you set prices. You can divide your projected crop based on your appetite for risk, leaving a portion of your crop to capture unexpected upside.

GPOs remove some of the emotion from marketing grain. If you’re confident in your cost of production numbers, you should feel relief when your target price triggers your GPO. The fever of a bullish market can be dangerous, especially in a market that is swinging wildly. If you think the market is going to keep climbing you can actually miss some really good prices only to see your profit evaporate as the market falls back down before you priced your crop.

Use GPOs alongside other marketing tools

GPOs should be used in conjunction with other types of contracts in a well-rounded marketing plan. A basis contract is another good tool to use. It allows you to lock-in basis, choosing a narrow basis before delivery month.

Work with your CSR. They are a good resource to talk through your marketing plan and can help you set up GPOs to market a portion of your crop.